Unitas Consultancy (A GLOBAL CAPITAL PARTNERS GROUP COMPANY) Q2 2016
STRICTLY CONFIDENTIAL
Office No. 1706, Indigo Icon, Plot No. F, Jumeriah Lake Towers, Dubai, UAE 1
Dubai: The War of the Villas
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Executive Summary
• A breakdown of the pricing structure of the horizontal market (mansion, villas and townhouses) in 2005 reveals that 85% of units in freehold areas were below the 2 million mark. This dynamic has inverted a decade later in 2016, as these units only accounts for 12% of freehold supply. As Dubai moves foreword with a new set of launches, catering to the salaried worker, a larger portion of up-coming supply (32%) is below the 2 million purchase price.
• The existing supply of units is skewed towards the villa segment, accounting for 63% of the total number of units, whereas
townhouses account for 32% and mansions 5%. These developments originally clustered around the Sheikh Zayed corridor, which accounted for 43% of the entire freehold stock. However, the new wave of launches has shifted westwards, centering around Al-Qudra and Al-Khail road. As developer cater to the pent up demand from the affordable segment 50% of the new supply is from townhouses, which historically made up only 32% of all freehold horizontal living units. For the mansion segment, 65% of the new units will be on Al-Khail road, in the form of Dubai Hills and Muhammad bin Rashid City
• The mean-reversion analysis is a useful indicator in valuing properties in order to determine whether they are over or under valued. The greater the divergence between the spread in either direction signals that a convergence is on the horizon, consequently over valuing or undervaluing a property. Within the villa segment it reveals that communities such as Jumeirah Islands, Springs, Arabian Ranches, and Victory Heights have entered the buy territory. Whereas Jumeirah Park and Palm Jumeirah remain within the ‘sell’ zone. Whilst there is no hard rule for mean reversion, the data indicates that historically prices have tended to mean revert in all communities
• Villas, townhouses and mansions have historically accounted for 14% of the entire freehold housing stock. However, with the recent flood of supply within this segment, the topography will shift making horizontal living units account for 17% of the housing stock. When analyzing returns factoring in the rental income since the 2014 correction, the apartment segment has outperformed.
1 Price Structure of the Horizontal Living
2 Supply Analysis of the Townhouses, Villas, and Mansions
1 Spread Trades
4 Apartments to Villa Ratios
Contents
4
“If you do not know how to ask the right question, you discover nothing” – W. Edward Deming
Apartments to Villas Ratio
15%
85% 88%
12%
Above 2 million Below 2 million
Price Structure of the Horizontal Living: Above 2 Million / Below 2 Million
Jumeirah Village Circle Jumeirah Village Triangle Springs – Emirates Living
Al Reem – Arabian Ranches
Existing Supply
68%
32%
Up-coming Supply 2020
Nshma Townhouse Reem
Mudon Akoya Oxygen Warsan Village
2005 Supply /
Up-Coming
A break-down of the housing supply by purchase points reveals that 88% of the existing units is above the 2 million mark. This dynamic has inverted from a decade ago, where bulk of the supply was below the purchase price point of 2 million, making it accessible to salaried workers. The pendulum appears to have shifted somewhat with recent launches by developers catering to the below aed 2 million mark on a greater scale (moving up from 12% to 32%); this is a trend that we opine will continue as developers increasingly cater to the mid market segment by developing in new upcoming suburban areas.
REIDIN
6
“Not everything that can be counted counts, and not everything that counts can be counted” - Albert Einstein
Supply Dynamics of the Horizontal Living
3033
33066
21383
Mansions Villas Townhouses
Supply Dynamics of the Horizontal Living of Dubai: Segmentation Analysis
1738
21.626
11018
1295
11.440
10365 Existing Supply
Up-Coming Supply
The above diagram depicts the housing supply dynamics of the horizontal living landscape. Currently the existing supply is skewed towards the villa segment accounting for 63% of the housing stock. However, in the second wave of development from 2012, developers began to launch affordable options in order to cater to the pent up demand. This lead to a series of new townhouses launches, which accounted for 50% of the new supply.
REIDIN
5%
63%
32%
45%
49.5%
5.5%
5%
58%
37%
Future Housing
Stock
*In monitored areas
14.927
6.084
5.739
7.632 3.377
4.153
10.616
4.954
Supply Dynamics of the Horizontal Living of Dubai: Density Analysis
Existing Supply
Up-Coming Supply
A geographic analysis reveals that the existing options in the freehold market for horizontal living is focused around the Sheikh Zayed corridor. However, as developers began to launch a series of new developments in the second asset boom, it shifted the supply westwards. The major beneficiary of the new construction boom within the horizontal living space will be Al-Qudra road, accounting for 46% of new supply.
43%
18%
22%
17%
46%
18%
46%
21%
18.304
10.237 16.355
12.586
Sheikh Zayed Road MBZ Road Al-Qudra Road Al Khail Road
Future Housing
Stock
32%
18%
22%
28% REIDIN
*In monitored areas
Segmentation Analysis of Location of Units
1305
256
177
8.512
5.283
4.238
3.593
5110
545 1.324
4039
Mansions Villas Townhouses
334
131 830
2.760
2.388 4.810
1.482 283
1634
5806
2642
The above diagram gives a granular break-down of units within the segments of the horizontal living space and their location. We can witness the major shifts have been in the mansion segment, with the majority of new stock coming on Al-Khail road in the form of Dubai Hills and MBR City. In the townhouse segment, Al Qudra road will act as the major repository for new supply.
Existing Supply
Up-Coming Supply
Existing Supply
Up-Coming Supply
Existing Supply
Up-Coming Supply
REIDIN
1639
387
177
830
Future Housing
Stock
11272
7671
9048
5075
Sheikh Zayed Road MBZ Road Al-Qudra Road Al Khail Road
Future Housing
Stock
5393
2179
7130
6681 Future
Housing Stock
*In monitored areas
10
“Data! Data! Data! I can’t make bricks without clay!” – Sir Arthur Conan Doyle
Price Performance of Villas
Where is the Spread Trade (I)
0.00
200.00
400.00
600.00
800.00
1.000.00
1.200.00
1.400.00
Spread
Average Spread 0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
Spread
Average Spread
Palm Jumeirah VS City Wide Villas Jumeirah islands VS City Wide Villas
Sell
Buy
Sell
Buy
A mean-reversion analysis between villa communities and the historical average of city-wide prices act as an indictor whether to buy or sell. The greater the divergence between the spread in either direction signals that a convergence is on the horizon, consequently over valuing or undervaluing a property. Whilst there is no hard rule for mean reversion, the above charts indicate that historically prices have tended to mean revert in all communities, implying that this serves as a useful signal for investors in determining buy/sell decisions.
REIDIN REIDIN
-250.00
-200.00
-150.00
-100.00
-50.00
0.00
Spread
Average Spread
Arabian Ranches VS City Wide Villas
Where is the Spread Trade (II)
-300.00
-250.00
-200.00
-150.00
-100.00
-50.00
0.00
Spread
Average Spread
Springs and Meadows VS City Wide Villas
In Arabian Ranches and Springs/Meadows, we witness that Arabian Ranches continues to fall deeper in the ‘buy zone’ whereas Springs and Meadows creeps towards the neutral territory. For the former therefore, it is likely that prices will revert upwards to the mean, as has already been witnessed in the Springs/Meadows Community.
Sell
Buy
Sell
Buy
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-150.00
-100.00
-50.00
0.00
50.00
100.00
150.00
200.00
Spread
Average Spread
Victory Heights VS City Wide Villas
-250.00
-200.00
-150.00
-100.00
-50.00
0.00
Spread
Average Spread
Jumeirah Park VS City Wide Villas
Sell
Buy
Sell
Buy
Where is the Spread Trade (III)
In Jumeirah Park, prices seem to be trending towards the buy zone, whereas Victory Heights appears ripe for an upward revision of prices towards the mean city wide levels.
REIDIN
REIDIN
14
“If you do not know how to ask the right question, you discover nothing” – W. Edward Deming
Apartments to Villas Ratio
14%
86%
Villas Apartments
22%
78%
Exiting Supply
0 0
Ratio of Apartments to Villas
Up-coming Supply
Historically, the vertical living has accounted for 86% of the total freehold supply. However, an analysis of the up-coming supply reveals that ratio is skewing higher towards the horizontal space, accounting for 22% of new developments. With higher levels of expected supply in the horizontal space, it is likely that overall capital gains in this space are expected to moderate.
REIDIN
219,029 Units
34,382 Units
79,922 Units
23,800 Units
17%
83%
Future Housing
Stock
58,182 Units
298,951 Units
*In monitored areas
16
Prices Action in Apartments and Villas
A price action analysis between apartments and villas reveals that the latter has under-performed by 2% since the correction in mid 2014. However, an important variable that is not factored in the equation is the rental income, as highlighted in our previous report “All the Returns We Cannot See”. When a total return analysis is conducted we witness that apartments remain flat since the fall, while villas have dipped by 2%.
Villas vs. Apartments – Price Change (2014 Peak to Now)
-2%
0%
-3%
-3%
-2%
-2%
-1%
-1%
0%
Villas Apartments
Villas
Apartments
Villas vs. Apartments – Total Return Analysis (2014 Peak to Now)
-11%
-13% -14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
Villas Apartments
REIDIN REIDIN
Conclusions Pricing Structure of the Horizontal Living Supply Analysis
Spread Trades Apartments and Villa Ratios
A break-down of the housing supply by purchase points reveals that 88% of the existing units is above the 2 million mark. This dynamic has inverted from a decade ago,
A mean-reversion analysis between villa communities and the historical average of city-wide prices act as an indictor whether to buy or sell.
Historically apartments have made up 84% of the supply, dominating the housing market. However, due to the lack of supply superior villas had superior price growths in the first bull run from 2002 to 2007. This caused developers to concentrate on launching villas during the second rally in 2012, increasing the ratio of upcoming supply. This tilt in supply dynamics has lead to apartments having superior growth rates.
The 2 million aed price point is one that allows home-ownership amongst the upper strata of society. In 2005, 88% of horizontal living units were within this price point. However, a decade later this metric has inverted, making the majority of units unattainable by salaried workers. However, as Dubai moves towards a more affordable spectrum of supply, this ratio of units launched below 2 million aed has increase (12% to 32%)
A break-down of the supply of mansion, villas, and townhouses reveals that the majority of supply is focused around the villa segment (63%). Furthermore, the majority of developments have been clustered around the Sheikh Zayed road corridor. However, as developers began to launch the second wave of launches in 2013, they shifted westwards, towards Al-Khail and Al-Qudra road. Moreover, the shift of supply has been tilted towards townhouses space, allowing for higher accessibility from the population
Mean-reversion has been used by technical analysts as an indicator to value asset pricing. By tracing how much prices have deviated from the mean signals a buy or sell signal depending on the direction. A similar analysis was conducted in the villa communities. It reveals that communities such as Jumeirah Islands, Springs, Arabian Ranches, and Victory Heights have entered the buy territory. Whereas Jumeirah Park and Palm Jumeirah remain within the ‘sell’ zone. Whilst there is no hard rule for mean reversion, the data indicates that historically prices have tended to mean revert in all communities
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